Bucking the overall positive market trend, life insurance stocks declined by up to 8 per cent after the IRDAI proposed a higher surrender value for life insurance companies.
In the last two days, the stock of Life Insurance Corporation (LIC) slipped by 1 per cent to finish at Rs 796.4, while SBI Life Insurance dropped by 1 per cent to settle at Rs 1452.6, and HDFC Life Insurance declined by 3.6 per cent to finish at Rs 673.1.
ICICI Prudential Life Insurance stock also bore the brunt. It tumbled to Rs 519.40 (a 4.2 per cent fall) and Max Financial Services ended at Rs 973.3 (a 7.9 per cent decline).
The proposed increase in surrender charges will affect the profitability and Value of New Business Premium (VNB) margin of the companies, analysts said.
“The IRDAI released a circular that talks about increasing surrender values in the life insurance par and non-par product categories. This would affect the VNB margins for the life insurance companies and that’s why the stocks have not done well in the last two days,” Suresh Ganapathy, managing director and head of financial services research at Macquarie Capital.
IRDAI released an exposure draft that proposed to reduce surrender charges on life insurance products, especially non-par savings products.
There will also be a threshold level of premium beyond which an insurer will not be able to levy the surrender charge and the premium will have to be returned to the policyholder.
